12 things one may not know about VA loans

12 things one may not know about VA loans

The military, navy, and air force are indispensable in protecting the nation against external threats and ensuring citizens’ safety. VA loans are a way to help army veterans get their home loans approved at low interest rates. Applicable to veterans and service members and their spouses, VA loans are useful ways to support Army personnel and their families. Certain aspects of VA loans, which many may not know of, increase their benefits for veterans.

One doesn’t have to make a down payment
Unlike other house loans, which require a down payment of a certain amount at the outset, VA loans do not require down payments. As a result, veterans do not have to suffer a financial crunch and can easily manage their current financial responsibilities while investing in real estate.

The closing costs are minimal
VA loans involve closing costs like other home loans. However, the closing costs for VA loans are significantly lower than those for regular home loans. These costs generally cover the expenses related to mortgage design, underwriting, taxes, insurance, and real estate commissions. Since VA loans’ closing costs are minimal, the borrower’s average expenditure is significantly reduced.

There is no PMI required
Private mortgage insurance, or PMI, is a type of insurance borrowers may have to buy if they make a down payment of less than 20% of the property’s total value. While PMI is a prerequisite for regular home loans, it is not required for borrowers eligible for a VA loan, another significant benefit of applying for this type of home loan.

The Government ensures VA loans
VA loans are a type of mortgage that does not require private mortgage insurance (PMI). However, they are still beneficial for lenders and borrowers because the government backs them. If the borrower defaults on their loan, the government guarantees a portion of the loan to the lender through a private mortgage lender. This government insurance makes VA loans a more secure option for lenders and a more affordable option for borrowers.

There is a mandatory funding fee involved
A funding fee is mandatory for all VA loan borrowers. This amount compensates for any losses incurred because of borrowers’ defaults. Although it is part of the closing costs, one may pay for it in addition to one’s loan expense.

Even those with relatively low credit scores may be eligible
Those with a low credit score may find it difficult to be eligible for a home loan, but VA loans are more flexible regarding credit scores. Those with a low credit score may also be eligible for a VA loan if they are Army personnel or spouses of veterans or service members. Also, interest rates for those with an average credit score may be the same as those with high scores. As a result, this scheme is highly beneficial for those with a bad credit report.

It’s possible to apply for a new VA loan after paying off the previous one
Suppose an army personnel needs to move to another place on duty but has already taken a VA loan for the existing property. In that case, they can secure another VA loan for a second property with a minimal or zero down payment if they have paid off the first one. This makes it highly convenient for army veterans and service members, who typically need to move frequently to new places owing to their profession.

Another eligible individual may assume a VA loan
Another significant advantage of VA loans is that another eligible person may take them over if the VA and lender approve of this handing over. However, the other person taking over the loan should also be eligible for a VA loan, meaning they should also be an army veteran, service member, or spouse of an army personnel.

There is no penalty for prepayment
Regarding VA loans, paying an amount higher than one’s monthly mortgage does not incur a penalty. In other words, there is no prepayment penalty for VA loans.

There are specific eligibility criteria
While the broad eligibility criterion for VA loans is that one should be an army veteran or service member or the spouse of an army personnel, there are specific criteria for eligibility that an applicant should meet. For example, the duration for which the individual has served in the army and the service period plays a key role in eligibility. For instance, an army officer who had served for a considerable duration in the Vietnam War is highly likely to have their VA loan approved. However, once a person earns eligibility for a VA loan, it is permanent, lasting even after decades.

The VA loan rates are relatively low
Compared to other home loans, VA home rates are low, typically 0.25% lower than regular home loan rates. Also, since there is government and VA backing, VA loans are safe for borrowers and lenders.

VA loans have low foreclosure rates
It has been observed that VA loans have the lowest foreclosure rates among home loans. This implies that army veterans, service members, and their spouses are serious about their home loan repayment, which makes the situation highly favorable for lenders.